Prepare and Preempt: Getting Ready for UPS and FedEx Rate Increases

Spend Matters welcomes another guest post from Jon Winsett of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom and shipping.

In a few short months, carriers will begin giving shippers a preview of 2014 rate increases. Based on historical evidence and current market forces, shippers can expect them to be unprecedentedly high. Those who want to blunt the impact of these cost increases must be preemptive…starting immediately.

Shippers need to arm themselves with tactics that will help negate rate increases and prevent overspending:

Analyze shipping spend. It’s surprising how many shippers lack visibility into their shipping spend across their carrier mix. Before shippers can reduce costs, they need to answer the following questions: How much is the business spending with each carrier, and on which service level? Which accessorials and surcharges are having the biggest impact on the budget?

Issue RFPs and compare NET rates. Most shippers have long-standing relationships with their small parcel, LTL, and TL carriers of choice. But that doesn’t mean they shouldn’t introduce healthy competition. Periodically, shippers need to bring new bids to the table, compare NET (versus published) rates and renegotiate their current contract. The process can be intensive, but it’s the best way to secure lower rates – it’s worth it.

Optimize shipping methods and distribution network. The introduction of new hybrid small parcel services and the growing use (and capabilities) of regional carriers have prompted many shippers to re-evaluate their shipping methods and distribution network. Shippers that want to reduce shipping expenses need to understand their unique shipping profile and explore alternative methods that will cut costs while maintaining customer service levels. Additionally, companies should understand how they can leverage USPS-partnered services for more cost-effective last mile delivery, as well as how they can engineer their distribution network to get goods closer to the recipient. 

Beware of ground minimums. While surcharges may be going up, shipping discounts are on the decline. Minimum ground package charges have increased 6% (and as high as 8.5%) in previous years, making even the most cost-conscious shipper subject to higher costs with little recourse. Companies need to understand how ground minimum charges impact their spend, especially if they ship low-weight, short-distance packages. These fees often negate even the “best” discounts.

Analyze impact of DIM factor. Carriers are getting historically high fees from shippers that ship large-size, lightweight packages. Companies that fit this profile need to gain visibility into how dimensional weight factor is impacting their budgets, and then explore packaging options to minimize this impact.

Have a plan for how you will keep up with tariff changes. Most broad tariff details are published once a year in carriers’ service guides, but few shippers are aware that these tariffs can change at any time. With some tariffs running at 50+ pages in length, companies need to have a plan in place for how they will monitor and stay on top of changes, as well as to mitigate the impact – whether through internal resources or by outsourcing to a third-party specialist.

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