Spend Matters welcomes this guest post by Jim Haller, program director of transportation services, at NPI, a spend management consultancy, focused on eliminating overspending on IT, telecom and shipping.
When it comes to UPS and FedEx, their annual rate increases tend to generate a lot of discussion. Last quarter, the carriers both announced a fairly modest increase that was on par with previous years (a 4.9% hike for ground and air services for both carriers). However, this increase doesn’t provide a complete picture to shippers.
As we’ve mentioned before, the published general rate increase is an average. Actual increases can be much higher depending on the zone and unique package characteristics. It also doesn’t factor in a long list of higher surcharges and accessorial fees. Here is how some of these have increased in 2015:
(As a side note, a historical view of aggregate UPS and FedEx rate increases back to 2010 shows that FedEx and UPS customers will pay anywhere from 32-37% more in 2015 than they did 5 years ago. The cumulative general inflation rate for the same period is only 20.9%.)
Most importantly for the year ahead, the 4.9% general rate increase doesn’t include both carriers’ decision to charge dimensional weight pricing for all ground shipments in 2015. This will impact an estimated 30% of UPS and FedEx ground shipments, with some shipments costing as much as 35%+ more expensive to ship.
Shippers should prepare for more than higher shipping costs in 2015 – they should prepare for volatility. The current carrier environment is conducive to more pricing and services changes, and – fortunately – the exploration of new carrier alternatives (especially regional carriers). To effectively negotiate in this climate, shippers need a deep understanding of each carrier’s pricing, profit objectives and cost-to-serve and which shipping methods will yield competitive service levels at lower costs.