Spend Matters welcomes another guest post from Jim Haller of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom, and shipping.
Critics are blasting FedEx for pricing changes announced earlier this month. They are as follows:
- Dimensional Weight Pricing: Effective January 1, 2015, the company will apply dimensional weight pricing to all FedEx Ground shipments. Previously, dimensional weight pricing was only applied to packages of three cubic feet or more. NPI estimates this will affect 30 percent of all ground shipments.
- Fuel Surcharge: At FedEx Freight, the carrier’s less-than-truckload (LTL) arm, fuel surcharges will increase by 3 percent for all FedEx Freight shipments governed by its FXF 100 series rules tariff. Effective June 2, 2014, the new fuel surcharge will apply to shipments within the contiguous United States; among the contiguous United States and Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands and Canada; and within Canada.
These parcel shipping cost increases will cast a long shadow across the supply chain – particularly in the manufacturing, distribution, and retail sectors – and are particularly challenging to deal with in an era when free shipping is a competitive trend. If history is any guide, UPS will make similar adjustments to their pricing (though this is an interesting copycat move for them to skip in order to create competitive advantage, so we may be in for some fun!). If UPS does follow suit, this will touch virtually every North American shipper.
Shippers looking to mitigate these cost increases should take the following actions as soon as possible:
- Analyze the short-term and long-term effects of changes to dimensional weight pricing and fuel surcharges. Define how these changes will affect your shipping costs in 2014 and 2015. Be sure also to factor in anticipated increases to FedEx’s general rate, surcharge, and accessorial costs.
- Tune your packaging. If the DIM weight change is going to affect you, you have runway before the changes take effect in January 2015 to explore and implement packaging alternatives that minimize the cost increase. So make that a priority.
- Quantify carrier cost-to-serve. Uncover where FedEx is making excess margin based on your unique shipping profile and patterns. Negotiate this excess margin out of your carrier contract to maximize discounts and reduce costs.
- Explore hybrid alternatives. There are some good hybrid service offerings that can be used to ship affected packages. Examples include FedEx SmartPost, UPS SurePost, DHL GlobalMail, and regional couriers.