What to Expect With Parcel Carrier Rate Hikes

UPS this month announced an extraordinary increase in its net profit for the quarter ended June 30. FedEx recently announced similar results for its quarter that ended May 31. I did not hear resounding applause from shippers in recognition of their splendid results, however.

What’s more, ground shipments for UPS were fairly flat year-over-year. Yet ground revenue was up by quite a bit; weight per shipment was not. What does that tell you?

That you are paying significantly more for the same shipments you sent last year. Somehow the 5.8% general rate increase announced in December translated to an 8% increase in revenue. How does this happen?

Well, assuming you have negotiated a discount, the “minimum charge” went up far more than the general rate increase. What this means is that the “minimum” invoice price often eliminates or mitigates any discount percentage you think you are getting.

And if your shipments typically weight less than 10 lbs. then you get not the “general percentage,” but the percentage the carriers took up their minimum. This is usually the zone 2, 1-lb. published price.

For most, I would have you consider that there are more 1-lb. to 5-lb. shipments than there are 6-lb. to 1-lb. shipments, and more 6-lb. to 10–lb. shipments than 11-lb. -15-lb., and so on. And when you do cell-by-cell analysis of what the general rate increase (GRI) did to discounted customers, it hit the shorter zones harder than the farther ones as well as targeting the lower weights.

The carriers have increased the yield on a shipment by tinkering with the published formula for the calculation of dimensional weight. Both FedEx and UPS this year changed the factor from 194 to 166 for Ground and Air packages that are 3 cubic feet (5,184 cubic inches) or larger for shipments within the U.S., and from 166 to 139 for International Ground shipments to Canada.

This was a bold move by the carriers, and has brought them millions of dollars in free. I have customers that have seen double-digit percentage increases in what they are paying this year vs. last.

So in addition to another creative price “adjustment” come January, shippers should be prepared for an encore of the dimensional trump card. Rather than lowering the divisor again (although they could take it down if they so desired), the shippers are more likely to reduce or eliminate the exemption for parcels less than 3 cubic feet.

Shippers can also expect larger than GRI “adjustments” in the accessorial fees, as this has been the trend or some time. With the USPS announcing that it wants to close thousands of post offices, this tells me the private carrier delivery area surcharge can take a bump to which there will be little resistance.

So what’s a shipper to do? As I teach my clients: In life, everything is negotiable.

Do you have to accept the minimum charge the carrier is trying to impose upon you? It’s negotiable.

Do you have to have a minimum charge at all? That’s negotiable.

Do you have to accept the new and improved dimensional divisor? That’s negotiable.

Do you have to pay anything as a dimensional penalty? That’s negotiable?

Do you have to pay the fuel surcharge they are asking? The percentage is negotiable.

Do you have to pay fuel surcharges at all? That’s negotiable.

Do you have to pay for address correction? Is the revenue threshold set in stone? Is the percentage they offer as a discount negotiable? Is the length of the contract negotiable?

Can you lock in the current base tariff for the length of the contract and not be subject to the GRI every January? Can the annual GRI you suffer be capped?

The loss of DHL from the domestic competitive landscape in January of 2009 has redefined the rules for what FedEx and UPS can do to their prices, their surcharges and their rules leaving shippers little leverage.

It’s time to think differently about what you can do to protect your company and perhaps your continued employment.

Gerard Hempstead, a retired vice president for DHL, is president of shipping consultancy Hempstead Consulting.

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