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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!