Rising parcel costs are sucking up your dollars (credit: rc.xyz NFT gallery on Unsplash)
With the new year underway, you may be feeling the burden of the latest round of carrier rate and surcharge increases hitting parcel costs. In order to understand and mitigate their impact on your business, it’s important to arm yourself with good information.
The published general rate increase (GRI) for FedEx and UPS is 4.9% again this year. However, that accounts for increases across all zones, weights and services. Lightweight residential service rates and surcharges are increasing at a much higher rate. The impact of the rate increase will vary based on your characteristics, but most parcel shippers should budget a net impact between 8% and 9%.
FedEx Home Delivery minimums are up 7.2% for 2021. In other words, any shipment that was hitting the minimum net charge in 2020 will automatically increase 7.2% before any other surcharges are added.
In addition, FedEx’s Delivery Area Surcharges (DAS) and Extended Delivery Area Surcharges (EDAS) are up 9.3% and 7.5% respectively. Delivery-area fees apply to nearly 28% of the U.S. population.
The carriers are also focused on packages that require additional handling in their network. These surcharges may apply to packages based on dimensions, weight or packaging. An extra $3 peak surcharge fee will also be applied to all additional handling (AH) packages in 2021.
It is important to keep up with the changing rate schedules and know when they apply because they can impact your parcel costs dramatically. For example, UPS charges an additional $16 per package if you ship products in boxes measuring 32”x30”x10” because the second longest side of the package is 30. Unexpected charges like these can quickly cut into profit margins.
Parcel Cost Increases Drive Demand for Data
How can you measure the net impact of these changes? It all starts with good, accurate data.
The main parcel cost drivers are service, zone, weight and dimensions. Service and zone are relatively straightforward, but issues related to incorrect weight and dimensions are quite common. Thanks to recent changes in dimensional weight rates, dimensions are now just as important as weight and apply to nearly all shipments.
To capture good data, you need the right processes in place at the point of shipping, often as part of the pick process. Explore methods to capture, automate and audit package weight and size. Accurate data can then be input into your OMS, WMS and/or TMS and shared with your carriers.
Good data is also necessary if you want to leverage rate-shopping software. The system selects the least-cost service based on the information you provide. If the package weight/dimensions are missing or incorrect, the shipping charge that is selected by the rate shop will be different than the actual charge from the carrier.
While more companies are improving their capabilities with regard to parcel data, there is still a big gap. Many lack the robust systems and parcel analytics platform or business intelligence (BI) tool required to capture and interpret the data. They may also be short on subject matter experts who are up to speed on the latest changes and able to apply them correctly. If you fall in this category, it may be time to invest in these resources or partner with a third-party provider who can supply them.
Carriers Raise the Bar
Going forward, parcel data management will be a priority. Overwhelmed by record ecommerce volume, carriers are working hard to automate their operations. That requires accurate information. As a result, carriers are increasingly demanding better data from shippers.
If you supply incorrect weight or dimension information, Carriers will capture the accurate data in their network and adjust charges accordingly. Of course, they only change invoices when it is in their favor. Don’t expect a credit if you tell them a package weighs 10 lbs. when it’s really 5 lbs.
Carriers are also penalizing shippers for bad data. For 2021, USPS has added a $100 surcharge for parcels that ship in excess of the maximum mailable size limit, a dimensional weight of more than 130”.
UPS’ audit fee takes it a step further. If average charges on an invoice are 2% higher than expected, they will assess a 6% fee. While FedEx has not yet instituted a comparable fee, they are likely to follow suit soon.
When you have good data, you can use it to your advantage with carriers. You can be more alert to unexpected charges and billing discrepancies on the back end.
It is wise to audit carrier invoices. Check for billing errors and duplicated charges. Also, watch for unexpected charges such as USPS’ undeliverable fees, UPS’ shipping charge correction audit fees, FedEx’s new 6% late-payment fee, address-correction fees, third-party billing, brokerage fees on international shipments and more.
The global small parcel market is expected to double in the next five years, with as many as 262 billion parcels by 2026, according to Pitney Bowes’ Parcel Shipping Index. Getting a handle on your parcel costs now is sure to have a big impact on your bottom line in the years ahead.
Megan Rudolph is Senior Director of Parcel Operations for Saddle Creek Logistics Services