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PARCEL COSTS COULD JUMP 50% BY JANUARY 1 – THE NEXT 90 DAYS ARE CRUCIAL!

Thursday, September 25th, 2014

A strong word of caution for parcel shippers:  Both FedEx and UPS have announced what will amount to significant rate increases in freight costs for certain Ground Service packages.

The increases are a result of the parcel carriers’ recent decisions to implement Dimensional Weight Pricing for cartons that measure less than three cubic feet (5,184 Cubic Inches) when such packages are shipped via the parcel carriers’ Ground Service offerings.  The FedEx rate increase will become effective on December 29, 2014 and UPS’s increase will take effect on January 1, 2015.

According to the parcel carriers, these increases are needed to offset their increased costs of handling and transporting these smaller packages within their Ground Service Networks.  By some estimates, the impending rate increases will not only impact approximately a third of all of the Ground packages the parcel carriers’ handle on a daily basis, but will also amount to whopping increases of between 25 and 50%.

To add insult to injury, these increases will be IN ADDITION to the parcel carriers’ Annual General Rate Increases that traditionally kick in right around January 1st.  As of this writing FedEx and UPS have not indicated what their General Rate Increases will be in the New Year.  If history has anything to do with it, shippers can expect the Ground service increases to be in the 6 to 7% range.

While the Dimensional Weight Pricing increases will impact Ground parcel packages, the movement to Dimensional Weight Pricing is part of a larger trucking industry effort to also revise LTL pricing metrics that are currently primarily based on product classifications.

These pricing changes are being made to create pricing metrics that better compensates freight carriers based on the actual space shipments occupy on carrier equipment.  Several LTL carriers have already introduced Dimensional Weight Pricing as the “next generation” of LTL pricing.  So, this is a trend that will certainly continue throughout the trucking sector.  The net result: Increased LTL costs as well!

So the real question is this; now that shippers are aware of the impending price increase, what if anything can you do to offset the impact these increases will have?

While there is no magic bullet, there are a variety of options Parcel Shippers can look at to minimize the impact of the rate increase.  For one, shippers will need expert guidance to navigate through those options to seek out the right solution for their company.  Also, keep in mind only Parcel Shipping Consultants with the ability to analyze ALL options for their shipper clients will be in a position to analyze these options.  Some examples of available options are:

  • Modifying Package Dimensions and Configurations
  • Comprehensive Analysis of Current Discounts and Incentives
  • Researching Competitive Shipping Alternatives
  • Comprehensive Analysis of ALL Contract Terms and Conditions
  • Implementing Creative Pricing Alternatives

Parcel shippers have two choices. They can decide to do nothing and pay the higher prices, or they can contact a Parcel Shipping Consultant now to perform an analysis of the best options to implement cost reduction solutions for their company.

So, what will your company do?  Wait for the increases to hit your budget and get the attention of management, or will you be proactive and jump on the bandwagon with other concerned parcel shippers and do something about this significant increase in costs before they go into effect?

UNDERSTANDING THE NEW MATH OF PARCEL RATE INCREASES

Monday, January 23rd, 2012

By now all parcel shippers have received their new rates from both UPS and FedEx that went into effect on January 2, 2012.  The overall message from both of these parcel carriers was that their General Rate Increases would be 5.9% for Ground shipments and 5.9% to 6.9% for Express shipments.  These increases should not come as a surprise to any parcel shipper as both UPS and FedEx increase their base rates every year regardless of overall economic conditions, or their own financial condition.  By the way, the domestic motor carriers do as well.  These annual General Rate Increases are but one reason both parcel carriers are so very profitable and they will obviously continue to be profitable in the future.  For the record, there is absolutely nothing wrong with operating a profitable business enterprise, in spite of what some folks think.

Click here to see, FedEx List Rates – 2011 vs 2012

Click here to see, UPS List Rates – 2011 vs 2012

While the overall increase is reported to be between 5.9% and 6.9%, you will see from the attached charts we have produced, (which compare rates by service type and by zone for both carriers), that the actual increases many shippers will pay are much higher than what has been reported.  Another important fact to remember is that these increases are compounded each year, so over a period of several years the increases are much greater than the sum of the individual annual increases.  To put this into perspective, since 1998, UPS’ Ground rates have increased 83% and FedEx’ Ground rates have increased 76%.  For Express shipments the compounded increases are much higher, 103% for UPS and 94% for FedEx.

The challenge for parcel shippers regarding these annual increases is how to absorb them since business conditions over the past several years has precluded many shippers from increasing shipping fees to their customers.  Recently a business executive told us they continually have to reduce the price of their products because their customers have established a ceiling on the total charge they will pay for goods; that is product cost, plus the cost of shipping and handling.  So the only way this shipper can gain any ground would be for them to re-negotiate their pricing agreement with their parcel carriers and retain some of those savings or they will never be able to gain a competitive edge.

While we are on the subject of contract negotiations, both UPS and FedEx have made it clear to their shipper customers that they will not negotiate directly with Third Party Negotiators.  Currently at least one lawsuit has been filed against both parcel carriers and the Federal Government is also sticking their nose into the fray to determine if Antitrust violations exist.

One thing is for sure however, and that is shippers should not be intimidated by either of these carriers regarding the use of Third Party Negotiators or consultants.  A shipper is certainly free to work with any company or individual it wishes to help them improve their bottom line.  And, Third Party Negotiators have certainly proven their value to the shipping public, and many have preserved the business for the incumbent parcel carriers, so both sides benefit.  Why else would these parcel giants take such a bold step to keep these specialists out of the negotiating process?

Parcel shippers should not let another day go by without having a Third Party Parcel Negotiator or consultant assist them with benchmarking their rates and services to ensure the rates they are paying are the best available rates for the services offered.  Parcel shippers can rest assured that neither FedEx nor UPS will reduce their rates to levels where they will not continue to make a reasonable profit.  The real question is how much profit does a parcel shipper actually contribute to UPS’ or FedEx’s bottom line.  If parcel shippers never measure it, they will never really know will they!