By now, you’ve been able to measure the impact of UPS’s and FedEx’s general rate increases effective Jan. 3. The majority of shippers are finding that the increased shipping costs amount to much more than the “average” 3.9% to 4.9% annual increase announced by FedEx and UPS. For many shippers, the increases were 10% or more.
A common misconception among shippers is that they are not affected by rate increases because they are “under contract.” Contracted incentives are based on each carrier’s list rates, which change every January. If you have a 50% ground shipping incentive in your 2010 contract, you still have a 50% discount in 2011; however, the discounts are applied to the higher list rates.
Here’s a recap of UPS and FedEx rate hikes for 2011, and some suggestions for analyzing and perhaps offsetting these increases.
FedEx 2011 general rate increases
FedEx in November announced that its Express shipping rates would increase by an average of 5.9% for U.S. domestic and U.S. export services, effective Jan. 3. The GRI would be partially offset by a 2% reduction to the fuel surcharge table, for a net 3.9% average increase.
Then in December, FedEx announced it would match UPS’s Ground increase of 5.9%, offset by a 1% reduction in the fuel surcharge table, for a net 4.9% average increase.
But in fact, list rates for common zones and weights increased significantly more than the announced (Tables 1-3).
Accessorial increases far exceeded the 3.9% to 4.9% “average” increases that were announced (Table 4).
In another 2011 change that sent shock waves through the shipping community, FedEx changed its Express and Ground dimensional weight volumetric divisor from 194 to 166 for U.S. domestic shipments, and from 166 to 139 for export shipments. For the impact of these changes, see Table 9.
UPS 2011 general rate increases
UPS announced an average net increase of 4.9% for all services. Air and international services would increase 6.9%, and Ground services would go up 5.9%. Both increases are partially offset by adjustments to fuel surcharges, down 2% and 1%, respectively.
Again, “average” increases are misleading (Tables 5-8).
Moreover, UPS followed FedEx’s lead on accessorial increases as well as the new dimensional divisors. Since January, the divisor used to calculate dimensional weight has changed as follows:
- U.S. Domestic UPS Air services changed from 194 to 166.
- U.S. Domestic UPS Ground services changed from 194 to 166 (applies to packages 3 cubic feet or larger in size).
- Export services from the U.S. (all services) went from 166 to 139.
- UPS Standard to Canada changed from 166 to 139 (applies to packages 3 cubic feet or larger in size).
- Import to the U.S. from Canada and the Virgin Islands changed from 166 to 139.
The change in dimensional divisors resulted in 10% to 23% rate increases for many common boxes (Table 9).
SO HOW CAN SHIPPERS CURB RISING COSTS?
Unfortunately, most will do nothing and accept the rate increase because they either don’t know about it or they don’t think it will have an impact. Another factor is that shippers may not be familiar with alternatives, or they might be unaware that many of the increases are negotiable.
But shippers who challenge their carrier representatives will find they are able to partially or totally offset these increases with new pricing incentives and concessions.
All contract terms are negotiable — including accessorial charges, dimensional divisors and even the GRI itself. If a carrier plays hardball and refuses to offer legitimate concessions, be prepared to switch carriers. Displaying a serious inclination to switch carriers offers the most leverage when asking for appropriate cost reductions.
Exploring alternatives in the market — including the non-incumbent carrier, the U.S. Postal Service and regional carriers — can lead to further cost reductions.
Shippers adversely affected by the new dimensional divisor should explore redesigning corrugated packaging and packing configurations, if possible. You could also ask your carrier to “grandfather” the current 194 divisor or even increase it further. Hundreds of volume shippers are locked in to contract divisors of 225 or more!
Finally, seek help. While the carriers have recently made it harder for shippers to engage third-party consultants and freight auditors, many are still open for business and can assist your procurement team with insight and strategies to impact your bottom line.
Good luck!
Rob Martinez ([email protected]) is president/CEO of shipping consultancy Shipware Systems Corp.
| Weight | Zone 2 | Zone 3 | Zone 4 | Zone 5 | Zone 6 | Zone 7 | Zone 8 |
|---|---|---|---|---|---|---|---|
| Letter | 5.00% | 5.20% | 4.70% | 6.68% | 4.53% | 7.14% | 5.13% |
| 1 | 5.19% | 5.34% | 7.20% | 7.13% | 7.19% | 7.42% | 7.44% |
| 2 | 4.07% | 4.57% | 7.16% | 7.17% | 7.22% | 7.46% | 7.47% |
| 3 | 4.03% | 5.42% | 7.18% | 7.23% | 7.19% | 7.45% | 7.47% |
| 4 | 4.14% | 5.48% | 7.16% | 7.19% | 7.21% | 7.45% | 7.50% |
| 5 | 4.09% | 5.40% | 7.25% | 7.21% | 7.22% | 7.43% | 7.49% |
| 6 | 4.97% | 5.39% | 7.25% | 7.18% | 7.20% | 7.47% | 7.44% |
| 7 | 5.09% | 5.39% | 7.20% | 7.24% | 7.22% | 7.49% | 7.44% |
| 8 | 4.00% | 5.40% | 7.17% | 7.24% | 7.23% | 7.45% | 7.50% |
| 9 | 4.12% | 5.45% | 7.25% | 7.21% | 7.25% | 7.48% | 7.46% |
| 10 | 4.11% | 5.44% | 7.22% | 7.25% | 1.36% | 1.67% | 4.08% |
| Weight | Zone 2 | Zone 3 | Zone 4 | Zone 5 | Zone 6 | Zone 7 | Zone 8 |
|---|---|---|---|---|---|---|---|
| Letter | 5.00% | 5.20% | 4.70% | 6.68% | 4.53% | 7.14% | 5.13% |
| 1 | 5.19% | 5.34% | 7.20% | 7.13% | 7.19% | 7.42% | 7.44% |
| 2 | 4.07% | 4.57% | 7.16% | 7.17% | 7.22% | 7.46% | 7.47% |
| 3 | 4.03% | 5.42% | 7.18% | 7.23% | 7.19% | 7.45% | 7.47% |
| 4 | 4.14% | 5.48% | 7.16% | 7.19% | 7.21% | 7.45% | 7.50% |
| 5 | 4.09% | 5.40% | 7.25% | 7.21% | 7.22% | 7.43% | 7.49% |
| 6 | 4.97% | 5.39% | 7.25% | 7.18% | 7.20% | 7.47% | 7.44% |
| 7 | 5.09% | 5.39% | 7.20% | 7.24% | 7.22% | 7.49% | 7.44% |
| 8 | 4.00% | 5.40% | 7.17% | 7.24% | 7.23% | 7.45% | 7.50% |
| 9 | 4.12% | 5.45% | 7.25% | 7.21% | 7.25% | 7.48% | 7.46% |
| 10 | 4.11% | 5.44% | 7.22% | 7.25% | 1.36% | 1.67% | 4.08% |
| Weight | Zone 2 | Zone 3 | Zone 4 | Zone 5 | Zone 6 | Zone 7 | Zone 8 |
|---|---|---|---|---|---|---|---|
| 1 | 7.69% | 7.65% | 7.61% | 5.97% | 5.93% | 5.67% | 6.96% |
| 2 | 7.65% | 7.54% | 7.46% | 6.37% | 5.93% | 5.84% | 6.94% |
| 3 | 7.61% | 8.00% | 10.85% | 5.73% | 5.80% | 5.86% | 6.96% |
| 4 | 10.55% | 10.95% | 10.81% | 5.86% | 5.85% | 6.00% | 6.83% |
| 5 | 10.95% | 10.95% | 10.64% | 5.71% | 5.98% | 5.96% | 6.96% |
| 6 | 10.80% | 10.73% | 10.86% | 5.73% | 5.85% | 5.81% | 6.91% |
| 7 | 10.75% | 10.71% | 10.76% | 5.95% | 5.93% | 5.98% | 6.99% |
| 8 | 10.71% | 10.95% | 10.93% | 5.80% | 6.00% | 5.83% | 6.88% |
| 9 | 10.68% | 10.69% | 10.88% | 5.90% | 5.97% | 5.83% | 6.98% |
| 10 | 10.84% | 10.68% | 10.89% | 5.97% | 5.98% | 5.90% | 6.89% |
| 2011 FedEx accessorial changes | 2011 | 2010 | %change |
|---|---|---|---|
| Additional handling | $8.00 | $7.50 | 6.70% |
| Declared value | $0.75 per $100/$2.25 min | $0.70 per $100/$2.10 min | 7.10% |
| Delivery area surcharge — commercial | $1.85 | $1.70 | 8.80% |
| Delivery area surcharge — residential | $2.75 | $2.50 | 10.00% |
| Delivery signature option — adult signature required | $4.25 | $4.00 | 6.30% |
| Delivery signature option — signature required | $3.25 | $3.00 | 8.30% |
| Express residential delivery charge | $2.75 | $2.50 | 10.00% |
| Extended delivery area surcharge | $3.00 | $2.75 | 9.10% |
| Ground Minimum charge | $5.17 | $4.84 | 6.80% |
| Ground residential delivery charge | $2.45 | $2.20 | 11.30% |
| Payer rebilling | $11.00 | $10.00 | 10.00% |
| Weight | Zone 2 | Zone 3 | Zone 4 | Zone 5 | Zone 6 | Zone 7 | Zone 8 |
|---|---|---|---|---|---|---|---|
| Letter | 6.33% | 6.67% | 6.22% | 8.30% | 6.16% | 8.48% | 6.68% |
| 1 | 6.65% | 6.75% | 8.70% | 8.69% | 8.80% | 8.99% | 8.86% |
| 2 | 5.41% | 6.02% | 8.71% | 8.76% | 8.71% | 8.94% | 9.02% |
| 3 | 5.49% | 6.87% | 8.76% | 8.72% | 8.70% | 8.94% | 9.04% |
| 4 | 5.74% | 7.06% | 8.65% | 8.71% | 8.74% | 8.96% | 8.98% |
| 5 | 5.46% | 6.93% | 8.78% | 8.75% | 8.77% | 8.97% | 8.99% |
| 6 | 6.51% | 6.86% | 8.70% | 8.65% | 8.75% | 8.94% | 8.96% |
| 7 | 6.59% | 6.81% | 8.70% | 8.72% | 8.79% | 8.98% | 8.97% |
| 8 | 5.39% | 6.90% | 8.69% | 8.67% | 8.73% | 8.94% | 8.97% |
| 9 | 5.51% | 6.92% | 8.72% | 8.74% | 8.69% | 8.99% | 9.00% |
| 10 | 5.50% | 6.91% | 8.73% | 8.73% | 2.74% | 3.10% | 5.54% |
| Weight | Zone 2 | Zone 3 | Zone 4 | Zone 5 | Zone 6 | Zone 7 | Zone 8 |
|---|---|---|---|---|---|---|---|
| Letter | 6.43% | 7.21% | 9.63% | 9.60% | 9.53% | 9.63% | 9.60% |
| 1 | 5.90% | 6.93% | 9.04% | 8.93% | 9.10% | 9.08% | 8.96% |
| 2 | 6.38% | 6.99% | 9.10% | 9.08% | 9.09% | 8.98% | 9.10% |
| 3 | 6.23% | 7.01% | 9.05% | 9.09% | 9.00% | 9.18% | 8.97% |
| 4 | 6.03% | 6.96% | 9.13% | 9.24% | 8.99% | 9.04% | 9.10% |
| 5 | 6.11% | 7.06% | 9.05% | 9.14% | 9.12% | 9.06% | 9.13% |
| 6 | 6.00% | 7.13% | 9.13% | 9.07% | 9.15% | 9.10% | 9.07% |
| 7 | 6.36% | 6.99% | 9.04% | 9.00% | 9.06% | 9.04% | 9.14% |
| 8 | 6.26% | 6.95% | 9.16% | 9.07% | 9.13% | 9.07% | 9.13% |
| 9 | 6.15% | 6.96% | 9.12% | 9.09% | 9.04% | 9.02% | 9.07% |
| 10 | 6.22% | 7.14% | 9.15% | 9.11% | 9.11% | 9.08% | 9.10% |
| Weight | Zone 2 | Zone 3 | Zone 4 | Zone 5 | Zone 6 | Zone 7 | Zone 8 |
|---|---|---|---|---|---|---|---|
| 1 | 8.40% | 7.91% | 8.11% | 9.15% | 9.80% | 9.57% | 9.70% |
| 2 | 8.00% | 8.39% | 8.18% | 8.84% | 9.70% | 9.77% | 9.75% |
| 3 | 8.21% | 8.55% | 8.05% | 8.42% | 9.67% | 9.59% | 9.46% |
| 4 | 8.22% | 8.38% | 7.98% | 8.44% | 9.67% | 9.70% | 9.66% |
| 5 | 8.33% | 8.33% | 8.21% | 8.50% | 9.70% | 9.56% | 9.59% |
| 6 | 7.93% | 7.61% | 7.59% | 8.55% | 9.52% | 9.43% | 9.60% |
| 7 | 7.60% | 7.51% | 7.82% | 8.68% | 9.59% | 9.47% | 9.40% |
| 8 | 7.69% | 7.83% | 7.63% | 8.41% | 9.57% | 9.40% | 9.59% |
| 9 | 7.81% | 7.82% | 7.55% | 8.51% | 9.62% | 9.42% | 9.49% |
| 10 | 7.80% | 7.78% | 7.80% | 8.55% | 9.53% | 9.59% | 9.49% |
| Weight | Zone 2 | Zone 3 | Zone 4 | Zone 5 | Zone 6 | Zone 7 | Zone 8 |
|---|---|---|---|---|---|---|---|
| 1 | 6.82% | 7.78% | 7.83% | 7.68% | 7.47% | 7.56% | 7.80% |
| 2 | 8.05% | 8.33% | 8.36% | 8.01% | 7.66% | 7.66% | 7.22% |
| 3 | 8.78% | 7.96% | 8.29% | 7.85% | 7.20% | 7.13% | 7.07% |
| 4 | 8.35% | 7.88% | 8.20% | 7.82% | 6.81% | 7.83% | 7.38% |
| 5 | 7.82% | 7.94% | 8.01% | 7.80% | 6.53% | 7.19% | 7.22% |
| 6 | 7.78% | 7.87% | 8.02% | 7.75% | 6.41% | 7.11% | 6.18% |
| 7 | 7.75% | 7.80% | 8.02% | 7.68% | 6.49% | 7.05% | 6.21% |
| 8 | 7.78% | 7.57% | 8.10% | 7.82% | 6.42% | 6.98% | 6.07% |
| 9 | 7.43% | 7.52% | 7.96% | 7.50% | 6.15% | 6.97% | 6.01% |
| 10 | 7.36% | 7.47% | 7.81% | 7.55% | 6.13% | 6.83% | 5.92% |
| Box dimensions | Cubic inches | DIM rule weight | Package cost | |||||
|---|---|---|---|---|---|---|---|---|
| L | W | H | 194 | 166 | @194 | @166 | Increase | |
| 12 | 6 | 6 | 432 | 2 | 3 | $22.70 | $26.47 | 16.6% |
| 10 | 8 | 6 | 480 | 2 | 3 | $22.70 | $26.47 | 16.6% |
| 12 | 12 | 6 | 864 | 4 | 5 | $27.53 | $31.68 | 15.1% |
| 10 | 10 | 10 | 1000 | 5 | 6 | $30.11 | $34.16 | 13.5% |
| 12 | 12 | 8 | 1152 | 6 | 7 | $32.47 | $36.69 | 13.0% |
| 12 | 12 | 12 | 1728 | 9 | 10 | $39.49 | $43.74 | 10.8% |
| 16 | 12 | 12 | 2304 | 12 | 14 | $45.84 | $52.58 | 14.7% |
| 18 | 12 | 12 | 2592 | 13 | 16 | $47.93 | $56.74 | 18.4% |
| 14 | 14 | 14 | 2744 | 14 | 17 | $49.96 | $58.52 | 17.1% |
| 24 | 12 | 12 | 3456 | 18 | 21 | $56.80 | $64.11 | 12.9% |
| 16 | 16 | 16 | 4096 | 21 | 25 | $60.92 | $70.29 | 15.4% |
| 18 | 18 | 16 | 5184 | 27 | 31 | $70.39 | $81.42 | 15.7% |
| 18 | 18 | 18 | 5832 | 30 | 35 | $75.62 | $88.63 | 17.2% |
| 18 | 18 | 24 | 7776 | 40 | 47 | $92.58 | $109.91 | 18.7% |
| 24 | 18 | 18 | 7776 | 40 | 47 | $92.58 | $109.91 | 18.7% |
| 20 | 20 | 20 | 8000 | 41 | 48 | $94.31 | $111.72 | 18.5% |
| 22 | 22 | 22 | 10648 | 55 | 64 | $117.94 | $142.20 | 20.6% |
| 24 | 24 | 24 | 13824 | 71 | 83 | $151.33 | $185.47 | 22.6% |