If you thought you didn’t have to think about rate increases until the fourth quarter think again.
Carriers announce general rate increases to their delivery services once a year, usually in the fall, and they take effect around January 1. But one of the effects of the growth of e-commerce is that carriers’ shipping costs grow all year long.
FedEx and UPS tend to adjust shipping rates to their advantage throughout the year.
These rate changes often target surcharges like additional handling service fees and oversize package fees. Sometimes carriers announce them well in advance: last winter, UPS told customers it would raise large package fees to $80 after the first of the year, but then the fee would rise to $90 beginning in July 2018.
Carriers are not required to give their clients months’ notice of mid-year rate changes. They can announce a rate increase at any time.
Shippers cannot do much to anticipate these rate hikes, but they can be prepared to respond to them. Companies who know exactly what they’re shipping — how much each parcel weighs, what the dimensions of those packages are, how far each one travels and so on — can plug in surcharge changes to see how significantly they’ll impact the bottom line.
As summer approaches, keep an eye out for rate increases and accessorial charges, keeping in mind that they may not be as straightforward as you expect
Changing Definitions of Surcharges
Carriers can increase surcharges without explicitly changing the definitions of which packages they classify as “oversize” or what type of shipping they consider “rush.”
In 2018, we saw this most clearly with FedEx’s adjustments to its additional handling surcharges. The company changed which packages require additional handling fees. Last year, FedEx applied these surcharges to packages that measured 60 inches on their longest side. This year, it is 48 inches.
Carrier changes to the dimensional divisor or DIM factor have similar effects. Overnight, a package that used to be charged according to its actual weight can be charged according to its dimensional weight. A company that knows its standard package weight can quickly understand how much these changes will impact its shipping spend.
Why do fees for large packages keep rising so dramatically? Parcel carriers are always seeking to discourage large and heavy shipments because bulky packages slow down workers, take up valuable delivery vehicle space and cause trucks to burn more fuel. But at the same time, more and more e-commerce companies promise doorstep parcel delivery of mattresses and appliances.
Carriers drive up prices for packages that require extra labor, truck space and fuel so they can earn a bit of extra money for the resources they spend on these shipments, and because this part of the market is growing so fast.
Watch for Upcoming Holiday Surcharges
Last year, UPS and FedEx announced their holiday rate increases over the summer. This year, UPS has announced its holiday rates already; we are still waiting on FedEx.
In 2017, the two major carriers approached the holidays differently. UPS hit shippers with a per-package surcharge at rates that varied from week to week. FedEx sent shippers a steady fee schedule with higher rates for larger packages.
In 2018, it looks like UPS is sticking to its strategy. The carrier upped rates on all packages during the week before Christmas and increased its large package and additional handling surcharges further.
Additionally, many carriers waive money-back guarantees or service refunds during the holidays. During the rest of the year, this contractual language means carriers promise to refund the cost of late shipments. But between Thanksgiving and Christmas, FedEx and UPS extend the late-delivery window by 90 minutes or until the end of the day — if they don’t black out these dates altogether.
At Reveel, we recommend reviewing your contract well in advance of the holiday season so you can anticipate your shipping costs. If you ship with FedEx, keep an eye out for its holiday fee schedule this summer.
Update Your Contract Negotiation Strategy
When you review your contract, make sure you do it with your company’s data in mind. Is a recently modified surcharge hitting a particular product particularly hard? If so, that may be a fee you can target in your next contract negotiation.
Also, take time to review your carrier’s seasonal or volumetric discounts. In the midst of dozens of fees and surcharges, you may find savings you have not been taking advantage of. These little discounts can add up to big savings.
Finally, consider working with a trusted partner to make your contract better. At Reveel, our expert consultants review contracts with a fine-tooth comb, looking for outdated provisions or surcharges that exceed industry norms. We dive into companies’ data to understand how much their contract costs them. Then, we figure out which contractual changes could save our clients the most money.
We routinely help executives negotiate savings of 15% to 20%. Reach out today to see how we could help your company cut its shipping spend.
